PBBANK: Operational Efficiency and Robust Asset Quality Drive Strong Financial Results

A leading financial institution’s nine-month (9MFY25) earnings were in line with market expectations, primarily propelled by a notable 5.9% year-on-year increase in net income and a healthy Return on Equity (ROE) of 12.3%. The strong performance was underpinned by significant gains in non-interest income and sustained operational efficiency.

Performance Review

The institution reported a core net profit increase of 4.7% quarter-on-quarter in 3QFY25, contributing to the in-line 9MFY25 results. This improvement was largely attributable to a robust 19% increase in non-interest income (NOII) year-over-year, alongside a modest 2.5% gain in net interest income (NII). The momentum in NOII in 3QFY25 was particularly strong, boosted by higher unit trust fees, insurance income, and investment gains.

Operational Strengths

Efficiency metrics remained solid, with a positive Gross-Adjusted-Workforce (JAW) ratio of +0.2% and a stable Cost-to-Income (CI) ratio of 34.9%. Management’s focus on cost control was evident, with lower operating expenses and provisions aiding the sequential earnings growth. Asset quality demonstrated resilience, with the total loan loss coverage standing at a robust 244.3% and credit cost holding steady at 3 basis points, well within guidance. The group’s gross impaired loan (GIL) ratio saw a slight decline to 0.52% in 3QFY25, reinforcing the strong asset quality across key loan segments. Operations in Hong Kong also showed improvement, supported by stable loan provisions.

Challenges and Future Outlook

Despite the overall positive performance, the institution faced some headwinds. The net interest margin (NIM) experienced a 5 basis point decline year-to-date, settling at 2.19%. This compression was attributed to a recent OPR cut and intensified deposit competition. Management anticipates this interest margin pressure to persist into 4QFY25 but expects a recovery by 1QFY26. Loan growth for the group accelerated to 6.5% year-on-year, primarily driven by international operations, though domestic loan growth eased slightly to 6.6% but remained above the industry average of 5.5%. Looking ahead, the institution plans to increase its dividend payout to 60% in FY25, up from 57% in FY24. Future growth is expected to be supported by potential capital ratio gains from Basel III reforms, continued strength in NOII driven by strategic collaborations, and sustained resilient asset quality.

Analyst’s View

Analysts maintain a positive outlook, reiterating a ‘BUY’ recommendation. The target price for the stock is set at RM0.25, representing a potential upside of 25.0% from its last traded price of RM0.20. The valuation remains compelling, supported by the institution’s strong fundamentals and positive forward-looking catalysts.